Trade inspiration

When trading options, you need inspiration on what to do. At first, this looks like a difficult task. With some help, it becomes a doable task. What do I do?

In an ideal world, I trade options on stock that have been beaten down by the market and that just started to recover. It is key that their moat is still in place. The question is then, how do you find these stock?

One source of inspiration are DGI bloggers. What is great about these people? They publish their watch list for the month and their recent buys. It is not guaranteed that these stock all will be great trade. You still have to do your own homework and look at the stock. You still have to run through your own trade checklist to see it it ticks all most of the boxes.

One thing that I then try to do: sell a put at a lower strike than the price that DGI people like. When the stock then goes south, there is a double extra buffer: my buy price is lower than the price today and you have the premium top. Things like this help me sleep at night.

Another source is my personal watch list. These are the stock that I follow. It means that I have an idea of the max price I want to pay for that stock. And as long as I can write a put around these levels, then I am fine. I keep this watch list in a google docs. I add to that the gross and net dividend for the current price and the strike that I have in mind. It helps me to focus. This is a first indication that writing a put could be a possibility.

This list is composed out of the following

home market –  I have a certain home bias. These stock look easier to understand as they are close by. It is only the looks… Another reason is that there is less dividend tax to take into account. One major downside is that the options on these stock are often not liquid enough. Stubborn as I am, and in contradiction with best practices and my own rules, I will still trade these options. Probably Surely a bad idea. On the bigger Bel 20 and AEX stock, this is less of a problem: AB Inbev, Ageas, Una, GBL (not that liquid)

Oil sector: This is quite easy to do. There are a few ETFs on the US exchange that follow this sector and that have liquid options. And some individual stock are possible as well: XLE, XOP, KMI,…

Gold: Goldminers are my go to approach to include this asset in my trading portfolio. I trade silver as well: GDX, SIL, SLV

Sector ETFs: Most markets have also sector indexes and thus sector ETFs you can write options on. And when a sector i s down, individual stock in this sector might be beaten down. These could be good candidates: XLY, XLU, XRT

A third source is what pro traders are doing. Some make you pay for that, others give it away for free. I like tatsytrade a lot. They have great tools and content and often inspire me to find a trade. As they use strategies that I do not apply yet, I have to adjust to my own situation.

 

This page does not include investment advice or recommendations, nor a financial analysis. Nothing in this page may be construed as information with a contractual value of any sort whatsoever. This page is intended for information only. Ambertreeleaves cannot be held liable for any decision made based on the information contained in this page, nor for its use by third parties. Before investing in financial instruments, do your homework

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12 thoughts on “Trade inspiration

  1. One method that I use to add a stock to my watch list is looking at the top ten holdings of an ETF. For example; if I want to buy a oil stock, I would look at the top ten holdings of XLE.

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  2. Ha, I trade GDX and SLV as well. Facing a weird situation today. Can’t roll my 16Jun expiry of SLV ($17 put), future revenue insufficient to offset cost of buying back the 16Jun position, no matter how far out I go on the curve. I’ve not had that happen before. Going to let them expire and get exercised, ok holding SLV at $17 as a longer term play (then, I’ll start selling calls!).

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  3. Reading a lot helps to find nice targets. But I mainly solve it by making big bets. It’s the lazy way of the sloth. When you have done all your homework and are sure of the stock, why not go big? Bigger return for the same work! I love the scalability of investing. With that approach you only need a handful of stocks you really understand well. Since I have been following GBL for decades now it sure is a shame that option liquidity on that one is so low … (but they do have excellent champagne at their annual meeting).
    By the way, ABinbev is closing in on the 100 euro price point again, I might write another put on Monday!

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  4. Great advice. I also look at what the traders are doing at tastytrade.com. They have a live video broadcast out of Chicago, IL. It’s actually very addicting and entertaining.
    Scott

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  5. Thanks for the overview of what inspires your trades — very inspiring! My options trading has quieted down a bit, but it seems like volatility is increasing a bit, so I’ll look into doing some more trades soon.

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    1. Owning some XLE this makes me happy to hear that you think it will bounce back. I think the energy sector has some room to run and I’m looking forward to recapturing some of the gains 😉

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